Trade tensions trigger stock sell-off

Stocks are firmly offside on account of the heightened trade tensions between the US and China.

Europe

The Trump administration has lined up a 10% tariff on $200 billion worth of Chinese goods, and traders are running scared. There will be a hearing in August when the situation will be reviewed, but for the time being traders are worried.

Sky is back in the news today after Fox raised its offer to 1,400p per share for the company. The Murdoch family control Fox, which already owns 39% of Sky, and they are keen to acquire the remaining 61%. The Murdochs already own a significant amount of the British media, and the government is concerned about the prospect of them controlling all of Sky. Comcast offered £1,250p per share for Sky in April, and now traders are wondering if there will be a bidding war for the firm.

Barratt Developments confirmed they expect full-year pre-tax profit to jump by 9%. The company revealed that the average selling prices rose by 5.09%, and home completions increased by 1.1%. Even though the London housing market has cooled a little, the firm revealed it performed better-than-expected in the capital. Barratt’s bullish update was partially driven by the government’s help-to-buy scheme and cheap borrowing costs. The outlook was positive too, and total forward sales increased by 1.5%.

US

The standoff between Beijing and Washington has worsened. The Trump administration is talking about imposing tariffs on $200 billion worth of Chinese imports, and it is prepared to go even further. President Trump is making it very clear he wants to reorganise the trading relationship between the two countries. The strained relationship has prompted dealers to dump stocks.

The producer price index (PPI) rose from 3.1% to 3.4%, its highest level since late 2011. The jump in costs for producers is likely to push up the consumer price index (CPI) in the months to come, as costs are usually passed on to consumers. The core PPI, which strips out commodity components, also jumped to its highest level since the end of 2011. These reports point to higher demand, and this is encouraging to see.

FX

The US dollar index is a little firmer today as traders seek safe-haven assets. The stronger-than-expected PPI figures failed to lift the greenback.

It has been a quiet day in terms of European economic updates. EUR/USD and GBP/USD have been lacklustre today, but the slightly stronger US dollar has weighed on both currency pairs.

USD/CAD sold off after the Bank of Canada (BoC) hiked interest rates by 0.25% to 1.5%, meeting expectations. The rally in the oil price in 2018 has helped the Canadian economy. The BoC last hiked interest rates in January, and since then the US Federal Reserve have lifted interest rates twice, so it was in the BoC’s interest to narrow the rates gap. The US dollar has been in an upward trend versus the Canadian dollar since February, and if the wider bullish trend continues it could target the $1.3300 area.

Commodities

Gold has been hit by the slightly stronger US dollar again. The metal has been losing ground since April, and if the bearish move continues it could target $1,236. In recent months the metal has not been the safe-haven play that it once was, and today is a perfect example of that. The inverse relationship with the US dollar has been strong, and dealers will be keeping an eye on the greenback.

WTI and Brent Crude oil are in the red as traders are fearful a trade war will hurt global growth, and oil demand will fall. China is a major importer of oil, and should its economy suffer on account of tariffs we could see its appetite for energy dwindle.

An important oil terminal in Libya is back online and this is adding to the decline in the commodity.

There was a spike in volatility when the Energy Information Administration report was announced. US oil stockpiles dropped by 12.63 million barrels while dealers were only expecting a decline of 4.5 million barrels.

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